Football: A Potential Solution for Economic Revival
Argentina registered all-time high inflation since 1991 at 94.8%, in 2022. Prices for goods like clothing and footwear rose by 120%, and unfortunately necessity commodities are no strangers to extravagant prices either. 40% of their population is currently living in poverty. This country has been in the throes of an economic crisis for more than a decade. According to a study by Marco Mello in the UK, the winning team at the FIFA World Cup sees a 0.25% growth in the two quarters following their victory.The main reason behind this, is the international popularity gained by the winning country leads to an increase in their exports, thus improving their economic growth. He conducted research when Brazil won the FIFA World Cup in 2002, and his findings showed that the country’s foreign sales increased considerably. Argentina could certainly use whatever boost it could get right now, however, positive economic results are yet to be seen for the country. The final match between Argentina and France was viewed by approximately 1.5 billion people across the world. This puts them in the international spotlight which increases their visibility in the global economy and might reap positive benefits like increased trade and a promising image for possible investors, hence bringing in opportunities to change the trajectory of their economy. There are several reasons for Argentina’s poor economic condition. Firstly, the wage spiral effect has been rapidly going on, and no visible solution can be seen. Because of high inflation, workers in the economy demand higher incomes which increases their spending limits, this in turn leads to higher demand for goods in the market. But the production capacity of the manufacturers cannot be increased quickly, hence there is excess demand and a lower supply of goods which increases the prices of goods in the market. This vicious loop of increasing wages which directly increases inflation is called the wage spiral effect. Several solutions for this include monetary policy, open market policies and reserve requirements. Argentina is also in its 3rd consecutive year of a drought which has significantly shrunk its production potential, and trade with countries. When inflation initially began, the country’s response was to increase the money supply in the economy. This was a step that couldn’t be reversed. By 1990, Argentina had multiple cycles of hyperinflation, meaning a situation where there are excessive and out-of-general prices of goods in an economy. The government took several steps like the privatisation of public enterprises which reduced the government’s accountability, made the process less transparent for the public, and increased prices for the commodities. This backfired and worsened the existing situation. Political instability in Argentina adds to their economic woes with different leaders trying out different approaches to mend the situation. The constant change in governments, shortens the policy makers’ time to implement long-term policies, the effectiveness of which is compromised, and hence creates increased volatility in the market. It is also observed that in countries with more political turmoil, GDP rates are significantly lower than their counterparts. The relationship between political instability and economic growth goes both ways. It is a double-edged sword, as poor economic growth can serve as an impetus to change the government in power. The IMF agreed to a 44 billion-dollar extended program to strengthen the country’s situation of hyperinflation. It is a 30-month extended fund facility, intending to build international reserves back and improve the financial crisis. The country also formalised a currency swap deal with China, which will help the country to rebuild its reserves to cover trade costs and debt payments in the future. A currency swap means that two countries exchange their currencies of equal value at the current exchange rates. China is Argentina’s 2nd biggest trade partner after Brazil. This currency swap will ease the outflow of foreign currency from Argentina’s central bank and support Argentina’s currency too. It will help the country regain stability in the international market, and hopefully find a way out of extended periods of the economic slump. Winning the world cup brought a wave of happiness to the country where the common people were living in a dire situation for a long time. It was both a time of hope and solidarity, as the country came together to celebrate this historic victory. The country is also bound to expect a massive influx of tourism, which will provide some relief for bringing in foreign exchange. Historically, there has been a trend of a rise in stock prices in the country, after emerging victorious in the world cup. In Argentina, a day after their win, the hike in stock prices was led by the energy sector. The monetary prize for winning, which is 42 million dollars, will have to go through Argentina’s Central Bank due to their strict regulations of exchange, and will subsequently benefit the reserves.